Packaging Prime Time

Jul 7, 2003  •  Post A Comment

“Packaging fees” are two dirty words nobody wants to talk about in the TV industry.
Yet 95 percent of the new fall series on the six broadcast networks have packaging fees attached to them, and the fees have a big effect on the economics of talent agencies and studios alike.
Packaging fees are commissions paid to a talent agency for putting elements of a TV show together and essentially delivering it to a studio as a done deal. The bulk of a talent agency’s TV revenues come from packaging fees rather than straight commissions off of clients, TV industry executives said.
Packaging fees can be much more lucrative for an agency on a successful series because the fees include participation in the back-end. A standard package commission follows what is known as a “3-3-10” model. That means that an agency gets 3 percent of the license fee of the show, payable when an episode is produced; 3 percent of the budget of the show, which is deferred until the show hits net profits; and 10 percent of the back-end of the show, when it is sold into syndication.
Package `Friends’-ly
Numerous industry executives cite NBC’s hit sitcom “Friends” as an example of just how lucrative packaging can be for a talent agency. Next season alone, NBC will pay producer Warner Bros. Television about $180 million for an 18-episode final season of “Friends.” ICM, the agency that packaged the show 10 years ago, still takes in 3 percent of that license fee. That’s around $5.4 million for next season alone. Since it’s a profitable show, ICM also gets that second 3 percent from deferred net profits.
Where ICM really reaps the benefit of packaging is on the backend. Warner Bros. has made more than $1 billion selling “Friends” into syndication, according to some estimates. The packaging talent agency gets 10 percent of that, though the 10 percent is typically taken from a modified adjusted gross, which is less such expenses as distribution costs and overhead.
While few series reach the hit status of “Friends,” even a moderate hit can contribute a nice chunk of change to an agency’s coffers.
A typical license fee for a new drama is about $2 million per episode, or $44 million per season. If the series lasts four seasons-just enough to make it into syndication-the packaging agency would reap a little more than $5 million plus 10 percent of the back-end. If an agency does a high volume of packaging on shows that are moderate hits, it can still make a lot of money.
Studios Pay to Play
Studios pay the packaging fees, which are built into the production cost of a show. Most studio executives said they have no problem paying a packaging fee on a show for which an agency put multiple elements together and essentially worked as a development executive.
“Many times the agency deserves their package when they bring their packages together,” said one former Hollywood talent agent. “They deserve fees that are commensurate with that.”
However, the majority of the time agents will demand a package when they are just bringing one element, such as a big-name actor or a showrunner, to the table, studio executives said. Unwarranted packaging fees just drive up the cost of producing a TV show, they charge.
One widely mentioned example is the NBC fall sitcom “Coupling.” Universal Television Group’s Reveille acquired the rights to the British sitcom “Coupling” and sold an American version of the show to NBC. The show went through most of the development process without a packaging fee attached. However, when the producers wanted to bring Phoef Sutton aboard as the showrunner along with a director, they had to pay a package fee to their agents at Broder Webb Chevrin Silbermann.
The WB’s new sitcom “All About the Andersons,” produced by Warner Bros., is a split package between UTA, The Rothman Agency and ICM. The WB bought the show minutes after it heard the pitch from star Anthony Anderson and his partner Adam Glass, who are both represented by ICM. The network’s development executives then introduced them to Marco Pennette and Jamie Widdoes, who became executive producers and showrunners on the show.
“The real packagers on this one were [WB Entertainment President] Jordan Levin, [and WB development executives] Mike Clements, Tracey Pakosta and Tal Rabinowitz,” said Robb Rothman of The Rothman Agency, who represents Mr. Widdoes. “We just got the benefit of the packages.”
UTA got a split package because the agency represents Mr. Pennette.
Supply and Demand
Whether an agency gets a package fee or not usually comes down to leverage. If the studio wants the talent badly enough, they have to meet the talent agency’s demands. The studio also can choose not to pay the fee if they are willing to hire other talent.
Jerry Katzman, former vice chairman of the William Morris Agency who at one point in his career was the worldwide head of television there, refuted claims that talent agencies get paid a lot of money for some shows without doing real work on them.
“That’s the age-old argument,” said Mr. Katzman, who is now director of industry relations at UCLA and teaches classes on the TV business. “You can take that argument and apply it to every part of our business. Let’s take the actor. The actor has no problem paying an agent commission if the agent found them a job, but if someone called the actor and said `I’d love for you to do this role,’ the actor says, `Why should I pay my agent.’ Do the same thing with writers. Do the same thing with directors. Do the same thing with packaging. It’s no different. The truth is if you represent someone, you never know how it’s going to come about.” Talent agents have connections with actors, writers, showrunners and directors that are invaluable and worth the price of a packaging fee, another former talent agent said.
“You have creative executives sitting in desks around town who know nobody,” the former talent agent said. “They were secretaries and assistants and trainees the week before.”
Setting Limits
There are limits on packaging fees. Talent agencies based in California have to follow laws set forth by the California Labor Code and California Code of Regulations and talent agencies all have agreements with the major talent unions-the Screen Actors Guild, AFTRA, the Writers Guild of America and the Directors Guild of America-regulating packaging fees.
While specific rules on packaging fees differ per union agreement, all of them include a rule that a talent agency can’t take a package fee and a commission on their talent in the same show. The no-double-commission rule and other rules are intended to protect the talent.
Grace Reiner, assistant director of the Writers Guild, said packaging was a major issue in 1976 when the WGA renegotiated the Artists Managers Basic Agreement with the Association of Talent Agencies.
“Our concern is that when you have multiple allegiances, one may find itself taking precedence over the other even with everyone acting in good faith,” she said. “When you make your money from the client doing well, you have an interest in increasing the client’s pay, increasing the client’s position. If you are no longer dealing with your money being based on how well the client is doing, but how well the product is doing, you might not have the same interest in improving the client’s standing.”
The position of WGA negotiator was created as part of the renegotiated AMBA in 1976 expressly to address the multiple allegiance issue. Every agency that wants to accept package fees has to pay a fee into the WGA’s negotiator’s fund. Any writer who is represented by an agency that is packaging his or her show can use the WGA negotiator to negotiate the contract. The WGA negotiator is paid out of that fund. “It’s a third-party check,” Ms. Reiner said.
She said writers don’t use the fund very often, but it is there for them if they want to take advantage of it.
Studio executives and agents can all recount stories of deals that fell apart because the agency demanded a packaging fee instead of commissioning their client.
now When to Hold ‘Em
While packaging fees are the lifeblood of an agency’s TV department, they aren’t always the more profitable option on a show. Many cable networks won’t pay packaging fees-and cable packages that are paid are usually much lower than in broadcast, because cable shows don’t have as lucrative a back-end as broadcast shows at this point. For that reason, a talent agency could make more money from commissioning a big star actor in a cable show than taking a package fee on the show.
It can also be more lucrative for an agency to commission its talent on the show, especially if it has two or three people on a show, rather than split a package. If two or more agencies split a package among themselves, they’re splitting the 3-3-10 percentages. While more than one agency may ask for a package, ultimately the producing studio decides who gets the package fee.
When TV packaging first evolved from the radio industry, agencies never split packages. Now it’s common to have two or even three agencies split a package fee.
“One of the jokes going around town is if I hear again somebody has 50 some odd shows I’m going to throw them out of the room,” Mr. Katzman said. “The reason being there aren’t 50 some odd shows on the air. There [only] are if you are splitting commission and you count all the cable shows.”
Representatives from Endeavor, William Morris, ICM, UTA, CAA and Broder Webb Chevrin Silbermann would not comment for this story or confirm information in the accompanying chart.